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The defi Team defi ANALYTICS, defi INSIGHT, defi LOS

process improvement ideas in banking

Over the last decade, banks and credit unions, have adopted mobile and web technologies with unprecedented, and in some ways unanticipated, success. These pioneering technologies allow customers to do everything from monitoring checking and savings accounts remotely to instantaneously paying bills using electronic funds transfers. These are the types of process improvement ideas in banking that make things easier for customers. 

Banks and credit unions themselves have also been on the receiving end of the increased efficiency boon. Check deposits made via smartphones, for instance, are one of the many process improvement ideas in banking that benefit both financial institutions as well as their customers. For banks, the expense of physical check processing is eliminated, while customers are offered the uber convenience of no longer having to physically visit a branch. These innovations have not yet taken strong roots in the lending industry, though. According to the 2018 ABA State of Digital Lending study, “the majority of banks’ lending processes—including online application, onboarding, processing, underwriting and funding have yet to be overhauled through technology.”

In an increasingly fast-paced and highly competitive market, technology plays a decisive role in a lender’s ability to not only provide exceptional service but also stay profitable. Lenders who fail to take advantage of innovative, disruptive technology will be left behind. And helping banks make this crucial technological leap forward are new lending platforms employing the capabilities of cloud services, data integration, automation, and analytics.

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How Cloud, Data, Automation, and Analytics Are Fundamental to Process Improvement

The cloud, data integration, automation, and analytic capabilities each play a vital role in helping banks improve processes and optimize lending practices. Here’s how:

  • Cloud: Makes it easy to implement, configure, and continually update the lending system to take advantage of the latest loan origination software (LOS) functional improvements.
  • Data integration: Provides immediate access to current consumer and economic data, like credit, employment, income, and identity. This enables banks to base lending decisions on a more detailed picture of applicants.
  • Automation: By creating, applying, and modifying decision rules as needed, banks and credit unions reduce manual processes. This empowers them to review applications more consistently and efficiently.
  • Analytics: Applying statistical tools and algorithms helps to identify sub-optimal lending processes and assess portfolio segments to identify factors that influence profitability.

The 3 Loan Process Improvement Ideas for Bank Lending Optimization

Let’s explore three specific loan process improvement ideas to optimize lending practices—for both the borrower and the bank—that capitalize on the new tech capabilities outlined above.

  1. Replace paper with digital documents
  2. Integrate data with loan origination and decisioning
  3. Analyze performance of lending processes and portfolio profitability

#1: Replace Paper with Digital Documents

In contrast to most banking transactions, an auto loan application is still a paper-heavy, protracted process.  In a 2016 survey by the Federal Reserve, nearly half of all respondents complained of the difficult application process and length of time taken to receive a credit decision. This is likely, at least in part, due to the fact that relatively few lenders use a completely digital process.

A paper-based loan process has several inherent problems: the cost of copying and sending documents, delivery delays, lost or incomplete paperwork, and missed opportunities compared to lenders using digital documents. Cloud-based services can facilitate the use of digital documents, though.

Lending software made available via the cloud provides electronic forms or PDFs to capture applicant information. Automated steps easily guide the applicant through the data entry process, verifying data as it is entered and notifying the user in the event of an error. And an automated loan application process ensures all relevant information and documentation is captured before being sent to the lender.

The benefits of digital documents are significant, especially for lenders with high-volume loan applications. They include:

  1. Receipt of documents within minutes or hours instead of days
  2. The ability to accurately process a greater number of applications
  3. The elimination of processing costs from shipping paperwork
  4. No potential loss of documents as they are secure and accessible online by the applicant and the lender
  5. Retention and compliance requirements met without the need for voluminous paper storage

#2: Integrate Data with Loan Origination and Decisioning

For many lenders, the loan origination process still involves manual steps, vestiges of a process established decades ago. These processes typically involve visual verification of applicant data or the need to login to multiple separate data systems as part of the verification process. Each manual step that is required delays the loan decision.

The technical limitations of legacy lending systems reduce the lender’s ability to replace manual steps with automated decisions. They also make it impossible to integrate alternative data sources that enable lenders to make more informed, accurate lending decisions.

Via the cloud, however, modern loan origination systems offer pre-integrated access to data sources. This data can be automatically accessed without a manual login to verify applicant information using decision rules. Results of verification, in combination with decision rules, can also help provide a better assessment of creditworthiness.

With integrated access to a wider range of relevant consumer and economic data than ever before, as well as the use of decision rules to eliminate manual steps in lending processes, lenders realize the following benefits:

  1. Greater efficiency and accuracy in processing loan applications
  2. Faster decisions regarding loan applications
  3. Better quality decisions that support lender’s business goals
  4. Human expertise focused on high-value tasks and decisions

#3 Analyze Lending Processes and Portfolio Performance

Lenders have overwhelmingly large volumes of process and portfolio data, but legacy lending systems make it difficult to apply modern analytic tools. These tools include statistical models and algorithms that can help identify bottlenecks, trends, ratios, and lost sales.

Modern lending systems employ analytics to gain insight into process efficiency throughout all phases of the loan lifecycle, as well as garner a greater understanding of the factors affecting portfolio performance. Through the use of analytics specifically tailored to their business needs, lenders can easily:

  • Identify process steps that are needlessly complex or time-consuming
  • Identify steps where automated processes can replace manual processes
  • Monitor productivity trends using historical metrics
  • Analyze origination trends by geography or dealer as well as by approval, capture, and booking ratios
  • Determine which consumer or economic factors contribute to defaults
  • Compare portfolio segments to identify risk, opportunity, and underlying factors

Lenders who judiciously, and consistently, apply the power of analytics to lending processes and their portfolios see the following improvements:

  1. Streamlined processes that reduce decision time and improve decision quality
  2. Greater efficiency and lower processing costs for loan origination, especially when processes are fine-tuned to accommodate market changes or new regulations
  3. Better correlation of risk and effort to yield savings in processing time and costs
  4. Early identification of risk potential and intervention in subprime loans

In comparison to technological advances that make everyday banking effortless, consumers frequently mention loan applications as a process in need of improvement when it comes to complexity and decision time. Considering the volume of auto loans managed by banks, improvements in this process alone would positively affect a bank’s customer service reputation and profitability.

Modern loan origination software overcomes limitations of legacy systems. Digital documents reduce time and cost of processing loan applications. Integration of alternative data sources, as well as the application of decision rules, result in better quality lending decisions. And, by applying analytics, lenders can continually identify unprofitable or time-consuming areas in processes and practices. Whether you choose to implement one or all of these loan process improvement ideas, your loan processing costs will decrease, productivity will increase, and the quality of loan decisions will have a positive impact on profitability.

defi SOLUTIONS provides a flexible, innovative loan origination software platform that gives small to large lending institutions the tools they need to compete in the modern lending market. Our industry-leading SaaS loan origination system (LOS) is completely configurable, quick to implement, and provides actionable insights based on actual performance. Contact our team to discuss your specific lending interests. Or, schedule a demo to see how our solution can help you improve your lending processes.

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